BUSINESS

Resolution mechanism for banking union can be created without treaty change, says EU's Barnier

By Nikos Chrysoloras

The major lesson from the Cypriot crisis is that depositors, shareholders and creditors have the right to know the rules of the game regarding banking resolution well in advance, Michel Barnier, the European Commissioner for Internal Market and Services, has told Kathimerini in an interview. Mr. Barnier believes that the crucial building blocs of the Eurozone’s banking union can be created within the limits of the existing EU treaty, which puts him in disagreement with the German Finance Minister Wolfgang Schaeuble. The new framework will provide for the possibility to use resolution funds, and eventually public means, but only after all other options, including bailing in uninsured depositors have been exhausted, says the Commissioner. Nonetheless, Barnier believes that wiping out deposits over 100,000 euros, as happened in Cyprus, will be an extreme case scenario.

- Commissioner, let me start with the situation in Cyprus. In a statement issued by your office in March 28, 2013, you said that capital controls imposed in Cyprus, following the dramatic Eurogroup decisions, should be “limited in duration”. Almost two months later, capital controls are still in place, effectively creating a two-tier Eurozone (Cyprus and the rest). Do you have a specific timeframe in mind about when should these capital controls be lifted? What is the Commission’s recommendation?

The free movement of capital is a fundamental liberty in the European Union. But under certain conditions, this liberty can be suspended. It was a sovereign right of Cyprus to decide such suspension. And we in the Commission think that considering the severity of the situation in Cyprus, the Cypriot authorities made the right decision. Some of these restrictions have already been lifted since the start of the crisis. We are regularly monitoring, together with the Cypriot authorities, the restrictions, which are still in place. I believe that these measures cannot be permanent. This would not be in the interest of Cyprus. But in order to lift the measures, it is first necessary to ensure financial stability. We are working together with the Cypriot authorities on these issues, but we don’t have a precise time estimate on when will this be possible.

- We have heard many times by EU officials that Cyprus is not a template for the future and that deposits in the rest of the Eurozone are safe. Nonetheless, the decisions taken regarding Cyprus are in effect a precise implementation of your Directive Proposal from June 2012 on banking resolution. This proposal essentially treats uninsured depositors as bank creditors. So why isn’t Cyprus a template?

Because I believe in prevention, and I believe that the rules of the game should be known by everyone in advance. That wasn’t the case for Cyprus, where we had to take decisions with our backs against the wall. We communicated a bad decision about deposits of less than 100,000 euros, because we had to act in the middle of the night, in an emergency situation. That shouldn’t happen again. Depositors, shareholders, creditors have the right to know in advance. Depositors with less than 100,000 euros will be always and fully protected everywhere in Europe: no one should doubt that anymore. And in our opinion, bigger depositors could be called on, but only as a final resort, which means almost never. The big difference compared to what happened in Cyprus is that everyone will know in advance what will happen.

The reason I proposed this Directive on Bank Resolution a year ago is to make sure that taxpayers will not have to bail out banks. We want to protect taxpayers properly and as much as possible at all times.

Should the European Stability Mechanism intervene in the future to re-capitalize banks after uninsured depositors have been wiped out, or before? Which should be the order of imposing losses in cases of banking crises in the future according to the Commission’s view?

When the system is fully in place, with common supervision, better-funded deposit guarantee schemes in every country and common resolution for the Eurozone banks, we will have a full banking union. Our aim is to avoid the need for public financing for banks in the future. The objective will be to avoid using public money, but there maybe of course be cases, in which we will have to do so. In these cases, when all other options have been exhausted, either the state, in which the bank is based, will have to intervene directly, or the European Stability Mechanism. But I believe that’s should happen only after shareholders, and all other creditors and uninsured depositors have been bailed in. It hasn’t been agreed officially yet, but there is a broad consensus on that. And this is logical.

But aren’t you afraid that next time there is a peak of the crisis elsewhere in the Eurozone, people with more than 100,000 euros will run on their Banks?

But these people are not protected anyway at the moment. Their situation depends on national law. Actually, they will be more protected in the future, because their bail in will be the very final resort, which is not the case at the moment, and they will know in advance the rules of the game. And because banks will be stronger, better capitalised and supervised, it will be much less likely than today that they will be called upon. So, big depositors will be much safer.

Banking union proceeds at a slow pace. Given the existing situation and national positions and disagreements, when do you expect the different elements of the banking union (common supervision, common resolution regime, common deposit guarantee scheme) to be fully operational?

One should keep in mind that things take time in Europe, because democracy takes time and democracy requires more time that the markets allow. We have already reached agreement on the Single Supervisory Mechanism in record time, just a few months: Eurozone banks will soon be supervised directly by the ECB and I believe that means many of the problems which happened in Cyprus won’t happen again. I will table the proposal for the Single Resolution Mechanism this summer and the objective is to have an operational agreement before next year. The supervision will be in place next Spring. This summer we hope to see an agreement on the recovery and resolution framework as well as on the existing deposit guarantee scheme proposals. And before the end of this parliamentary term (May 2014), we hope to see a Single Resolution Mechanism legislation. In effect, it’s realistic to expect that before the term of this Commission expires, all the basic building blocs of the banking union will be in place.

The German minister of finance said recently that a full banking union requires a Treaty Change. Do you agree with this view?

I always listen very carefully to the views of the ministers of finance, and I understand fully Mr Schaeuble’s concerns about legal certainty. My conviction is, however, that we can put forward a proposal for a single resolution mechanism, in the coming weeks within the limits of the existing Treaty. This doesn’t mean that in the future, if there is a Treaty change, something that the Commission has actually advocated, we shouldn’t consolidate and improve the single resolution mechanism.

With the benefit of hindsight, do you think that the decisions taken on banking resolution in Cyprus and the MoU in Greece were the appropriate courses of action?

I think in the last three years European heads of state and governments have taken the right decisions, for regulation, for economic governance, for budget surveillance. At national level, there have been courageous decisions, which have been taken in Cyprus and Greece. As a politician, I am well aware of the efforts, which have been required from both the Cypriots and the Greeks. These efforts have been tremendous. And I don’t underestimate how tough and difficult these decisions have been and how much people are suffering.

In the Commission, I have been pushing for a long time to get the balance between austerity and growth right and that the actions that we take are necessary to rebalance the budget, but don’t destroy and rather encourage growth. But overall, the right decisions have been taken in difficult circumstances, bearing in mind many of the problems accumulated in Cyprus and Greece over many years. Both PM Samaras and President Anastasiadis are courageous men who have taken the difficult decision not to sacrifice the future, due to the political cost of the present. I am confident that both Cyprus and Greece will manage to come out of the crisis. These two countries are not alone. We show our solidarity and they have many assets to exploit.

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